Auditor-General's overview

E ngā mana, e ngā reo, e ngā karangarangatanga maha o te motu, tēnā koutou.

The Controller and Auditor-General (the Auditor-General) is an Officer of Parliament appointed under the Public Audit Act 2001.

The public audit function has been a critical part of New Zealand's public accountability system since the first Auditor-General was appointed in 1846. The Auditor-General's work helps Parliament and the public to hold public organisations to account for their performance. The aim of this work is to improve the performance of, and the public's trust in, the public sector.

Under the Public Audit Act, the Auditor-General is the auditor of all public organisations. Their duties include auditing financial statements and performance information, auditing spending against appropriations, carrying out performance audits and inquiries, and providing advice to Parliamentary select committees. In carrying out these functions, the Auditor-General must act independently.

The independent mandate and reputation of the Office are jealously guarded. The Office has built a strong reputation over many years for the work we do – both nationally and internationally.

This year, I reached the mid-point of my seven-year term as Auditor-General. I commissioned this review to reflect on where we are as an Office and the challenges the Office faces. I also wanted to confirm the key priorities for the remainder of my term.

When I began my term in mid-2018, the Office had recently published a strategy that sought to increase its impact with Parliament, the public, and public organisations. The strategy set out how the Office planned to do this through the relevance of the work we do, and how we work with each of those groups.

After a decade of minimal investment in the Office, Parliament provided, from 2019, increased funding to develop the capacity and capability needed to implement the Office's strategic plan. I consider that we have delivered on this investment and made solid progress against the strategy.

We have:

• improved our reporting to Parliament and the public;
• increased our focus on topics that matter to New Zealanders and delivered more of our work at a time when it can have the most impact;
• updated and expanded our good practice resources for public organisations; and
• increased our engagement activities with Parliament and those who lead and govern public organisations.

These improvements have given us a solid foundation on which to build. The work we do is generally well-received and impactful. We continue to receive strong, positive feedback from Parliament on our core role of helping it to hold public organisations to account for their performance.

Despite this progress, we still face significant challenges in building our capacity and capability. For example, we have some way to go in modernising our technology environment. However, we have clear strategies, good planning to support these strategies, and generally good momentum on them. Getting the Office to this point has involved a lot of hard work. I am pleased with the progress we have made, but there remains much to do and this will require ongoing investment.

The most significant challenge we currently face is delivering the Office's mandatory audit work. Many issues are affecting the future sustainability of the audit profession, which have cast doubt on the future of public sector audits.

These issues include the ability to attract and retain talent, the increased regulatory scrutiny on audits, increased requirements in auditing standards, more complex audit issues, increasing scope in the nature of information subject to audit, increasing expectations for auditors to provide more value beyond their mandatory audit work, and the transition of audit practices and methodologies to a modern digital world.

The effects of the Covid-19 pandemic have exacerbated these issues – and created new ones. Many risks that could previously be managed have become issues that must be addressed.

The most obvious consequence has been a deferral of audits as a result of delays by both public organisations and auditors. These delays have created a backlog of public sector audits to complete. As a result, my immediate priority is to address this backlog so that this key element of the public accountability system is not diminished.

Importantly, the measures that must be employed to address backlogs in the short term will not by themselves be enough to ensure the sustainability of public audit for the longer term. More needs to be done to sustainably deliver the portfolio of nearly 3400 annual audits across the public sector in the future.

There is no single solution to this. I must consider the audit portfolio as a whole and, given the environment we are in, allocate audit work to those audit service providers best placed to complete it over the medium to longer term. To ensure that we have enough capacity to do our core audit work, we need to also directly address the sustainability of audit fees (where they are not currently sustainable).

The Office must also play its part in enhancing the overall reputation of the audit profession so that it remains an attractive career option for graduates and others looking for a dynamic, challenging, and rewarding career.

Parliament has recently extended the mandate of the Auditor-General to areas such as auditing climate reporting and the New Zealand health plan. Independent assurance over this information will be of value to the public and Parliament, but my auditors will need to develop new capabilities in these areas. Such extensions to the nature of the information subject to audit, while critical to maintaining public trust, will also put pressure on both audit capability and capacity.

Within this broader context, particular attention needs to be given to Audit New Zealand, the Office's in-house audit service provider. As with the Office more broadly, new investment in Audit New Zealand has been severely limited during the last decade or longer. This has created a range of issues, and Audit New Zealand has increasingly been unable to match the other major audit firms in areas such as audit methodologies and tools.

Audit New Zealand is a key business unit for the Auditor-General. It is a benchmark public sector audit service provider, adds capability to the broader Office, and means that the Auditor-General will always have access to an auditor for all public organisations. I need to safeguard and strengthen Audit New Zealand's reputation to ensure that it is well positioned to continue playing its important role in the Office.

For Audit New Zealand to remain effective and efficient in its role, it must invest in new audit tools and technologies. I will also have to ensure that Audit New Zealand's audit portfolio best matches its capacity and capability and that it can continue to match other major audit firms in the quality of its work, its engagement with public organisations, and the way it manages its business.

We need to ensure that the Office maintains the trust and confidence of Parliament, the public, and the people who lead public organisations. This includes continuing to enhance the trust that Māori have in our role of helping Parliament and the public to hold public organisations to account.

The Office must work to deliver on our te ao Māori strategy. We have a strong interest in increasing our capability internally and growing our relationships with Māori. We have recently recruited a Kaiwhakahaere to lead the work on our te ao Māori strategy.

Finally, the Office must continue to build on its reputation as a trusted source of analysis, opinion, and advice.

How well the public sector delivers for, and engages with, New Zealanders in an environment where society is increasingly connected and misinformation can be easily disseminated will be key to the public sector maintaining the public's trust and confidence. The integrity of public organisations will also continue to be critical to maintaining that trust.

Therefore, it is important to maintain and enhance the Office's profile and reputation for independent assurance and evidence-based reporting, and for being current and relevant with our work.

Our people continue to be critical to our success. To meet our aspirations for the Office, we must continue to recruit and retain people who believe in the importance of our role and are prepared to work to the high standards that Parliament and the public expect from us. We stand or fall on the values we bring to our work and, in particular, our independence and courage to speak truth to power, supported by the quality of our work.

I thank Parliament for the strong support it has shown the Office. Holding the role of Auditor-General is a privilege. I look forward to playing my part in continuing to build the Office's reputation and impact during the remaining years of my term and positioning the Office well for the next Auditor-General.

Nāku noa, nā

John Ryan
Controller and Auditor-General | Tumuaki o te Mana Arotake

20 October 2022